Argus Group III 4cst ($/t) $985 $965 $945 $925 $905 $885 $865 $845 $825 Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 Jul 2019 Aug 2019 Sep 2019 European blenders for Group II base oils as they transitioned away from Group I supplies. Exports to Mexico also remained high. The Latin American country has continued to import the lubricant feedstock to use as a fuel extender for diesel. Most of the U.S. base oils shipments into Mexico were being used for this purpose. The country's actual lubricant consumption is less than half the level of U.S. imports. Total U.S. base oils exports to Mexico in the first half of this year rose to a record high of 6.50 mn bl, up from 5.00 mn bl during the same period last year. Argus domestic spot US Group III 4cst Argus domestic spot Singapore Group III 4cst Argus domestic spot European Group III 4cst Argus Group II N100, N150 ($/t) $950 $900 $850 $800 $750 $700 $650 $600 Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 Jul 2019 Aug 2019 Sep 2019 Argus domestic spot US Group II N100 Argus spot Singapore Group II N150 Argus domestic spot European Group II N100 EXPORTS EDGE DOWN BUT REMAIN HIGH Base oils exports also fell slightly in the first half of the year, but volumes remained high, especially to the key export outlets of Europe and Latin America. The flow of shipments out of the U.S. and regular removal of excess supplies have helped to keep the domestic market balanced. Exports of 20.31 mn bl in the first half of the year were down slightly from 20.50 mn bl during the same period last year, according to the EIA. But the volume was still the second highest for the first six months of the year since records began in 1981. Total exports during the first half of 2019 also outpaced domestic demand during the same period. This was the first time that U.S. base oil exports exceeded the volume placed in the domestic market in the first half of the year. A total of 3.58 mn bl of U.S. base oils moved to Europe in the first half of the year. The volume rose by 2% from the same period last year to a record high. Exports to the region have held firm even as Group II base oils supply in Europe has risen following the startup of ExxonMobil's 900,000 tons per year Group II refinery in Rotterdam in the first quarter. The trend reflected growing demand among LOOKING AHEAD TO 2020 With U.S. production down and exports at high levels, surplus U.S. base oils supplies have remained at more manageable levels as the market heads into the final quarter of the year. Surplus supplies typically rise during the last few months of the year in response to slower demand and as refiners seek to reduce their inventories. U.S. producers then offer discounts in the domestic and export spot market to balance those stocks before the end of the year. But the structural changes in the U.S. and global base oils market have created more uncertainty than usual about market dynamics in 2020. The changes in the global marine fuel markets have added to that uncertainty as marine fuel sulfur limits will be cut to 0.5% at the start of 2020, from 3.5% currently. These factors have raised uncertainty about the extent of any year-end price discounting compared with previous years. This year's steep drop in domestic supplies kept the market relatively balanced and prices higher than other key markets. Whether there will be a repeat of such a supply scenario next year is unclear. This year's rise in Group II supplies in Europe raises uncertainty about changes in requirements from the U.S. market. An extension of this year's firm prices relative to other regions would again incentivize supplies in those regions to target the Americas market. Molina is editor of Argus America Base Oils. She can be reached at 713-360-7560 or eva.molina@argusmedia.com. 23